Market Plus: Tomm Pfitzenmaier

Pearson: This is the Friday, January 25, 2013 version of the Market Plus segment. Joining us now is Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Mike.

Pearson: We've had a lot of questions submitted from our people on Facebook and Twitter and so I'd like to get started here. Daniel in Kansas is asking, when or which supply and demand factors affect the 2013 grain oil seeds markets? And how or when will non-commercial traders respond?

Pfitzenmaier: Well, the predominant factor there is what South America produces. And it looks like they're going to have a good crop. Argentina has got their beans planted. They were a little wet early, they're dry now but seem to be coming along. Northern Brazil has been getting rain right along, matter of fact a little too much in some of the early harvested areas. Southern Brazil is a little dry but they're expected to get some rain. Overall they're going to have a very good crop and it's going to get exported and that is going to be our big head wind. Now, as far as acreage goes, acreage isn't going to be probably all that much different than we had last year in the U.S. We have to remember they are producing twice as many beans as we are now so we're sort of the, we've got -- our logistics are good, we can move the product, we're a reliable supplier so we've got all of that going and they're going to use us to fill in the blanks. But that South American crop is going to drive whatever happens probably for the rest of the year.

Pearson: And non-commercial traders, typically they're going to wait and see what happens and then make their move once a trend is being established?

Pfitzenmaier: The funds were a big factor last year. They've been absent and like we alluded to in the show S&P made new highs this week and there's a lot of interest in the funds, they want to be in the market that's going, that's moving, that's making new highs, that is doing things and they don't see that happening in the oil seeds with, like I said, with a big South American crop it's like, what is there to get excited about. So there's going to have to be some good compelling fundamental reason to draw them back in I think and their lack of participation is why these rallies continue to stall out here. They have been short. They have covered those shorts. It doesn't seem like they're going to be enticed to be long.

Pearson: Not at all like we saw last end of the summer and into the fall.

Pfitzenmaier: Right, unless some, there's a big weather blow up. I mean, I'm not saying that can't happen, but at this point it doesn't seem likely.

Pearson: Now, you mentioned logistics talking about Brazil. How are they coming along in terms of being able to get their beans from Mato Graso, for instance, to the ports?

Pfitzenmaier: They're better than they were and they're making progress and they've got cheap labor so that contributes to them doing things differently than we would do them. I haven't been there personally so I can't testify to this but everybody that has tells me things are improving and they're getting better and they're spending money and I think that's going to continue.

Pearson: And we see those beans coming to market quicker than we have in years past.

Pfitzenmaier: Right, exactly.

Pearson: Okay. Well, we have another question here from Brad in St. Joseph, Illinois and we talked about this a little bit and he is kind of giving you an opportunity to expand. He says, other than the dollar and crude oil, what other things in the outside markets, if anything else, do you watch to give you some perspective on where grain prices are headed?

Pfitzenmaier: I mean, those are the two primary ones. Obviously weather is another wild card that you have to watch constantly. I guess the things I mentioned are probably the main outside markets that I would watch.

Pearson: Well, and I'd like to just kind of as a thing that could impact prices moving into the spring, have you been keeping up on the Mississippi? How do things look on the Mississippi River system?

Pfitzenmaier: I think there's been enough snow and they've blasted the rocks out of there that were kind of a problem so really from a farmer's perspective I almost going into spring worry more about being able to move fertilizer up the Mississippi than I do our ability to move grain down the river. I think there's been enough snowfall we're probably going to keep the river levels up high enough to be able to move product. But I think that is becoming less of a concern to the market.

Pearson: Okay. It's less of an issue that we're going to run into so there's not much impact on price.

Pfitzenmaier: Right.

Pearson: Justin in Blooming Prairie, Minnesota is asking about new crop. He is curious about when to market new crop corn and what tools would be best used in this environment we've got where we could see big variability by the end of the year?

Pfitzenmaier: Here's my deal with new crop corn. I go out and put on meetings, talk to farmers, everybody is scared to death to sell new crop corn because it is so dry. Hardly anybody has got any new crop sales on the books. Completely opposite of a year ago. A year ago everybody was selling new crop corn and that didn't work out so good for them so everybody is saying, well I don't want to get stuck that way. They want to see how the insurance price is established during the month of February so they're kind of waiting for that. My opinion on how to market grain facing the potential for drought like everybody is concerned about is you market your grain normally. Wherever you think the good price is, which I personally think is around $6, maybe a little better, and then you defend that against the drought with some kind of a call strategy. I personally would be buying the $6 call, selling the $7 call, you can do that for around 28 cents, gives you $1 up side potential. And those are the tools that I would use. Or buy yourself a put, sell an old crop put on July corn to help pay for it, sell a call to pay for it and develop some kind of a strategy that way. Those are the two approaches I guess I would take.

Pearson: Even this far out in the year we're not going to see much impact with the time value or anything?

Pfitzenmaier: Well, that is why if you buy a put you have to sell a call or sell a put or sell both to help pay for that put that you bought. Any time you're buying option premium it is expensive and it sets people back when they see it. So you have to find some way to sell something to offset that. And so that's why I'm selling new crop calls, old crop puts and helping the premium I collect from those to pay for that new crop put that I'm buying.

Pearson: And same advice for soybean producers?

Pfitzenmaier: Yeah. Basically. Again, I don't think the up side potential is real great. November beans up in that $13 to $13.50 area. I think if you can get that out of them you probably better be making some sales. And then, again, defend it with a call option strategy of some sort.

Pearson: All right. Thank you so much, Tomm, appreciate you being with us today. Have a great week. And I want to thank all of you for sending in your questions via Facebook and Twitter. We appreciate it. Keep sending them and we'll keep getting expert advice right back to you. Thanks for watching and have a great week.

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